Proactive cost management and innovation are the drivers of sustainable growth

Review: The 6th FACTON Congress

Over 60 representatives from key German and global industrial corporations along with leading industry experts came together at the 6th FACTON Congress “Securing the future with proactive cost management” on June 25th in Berlin to discuss how companies can grow profitably in an uncertain market environment. They all came to the same conclusion: Sustainable growth can only be secured through full cost and innovation transparency – not just in terms of products but also with respect to cost management.

Event sponsor Prof. Bernd Gottschalk, CEO of AutoValue GmbH and former president of the German Automotive Association (VDA), began the congress with a warning about the possibility of a split in the supplier landscape. The split would start to occur if small and medium sized suppliers in particular were unable to follow OEMs abroad where the major share of growth is taking place. “In a globalized world, the optimum value chain places new and high demands on all partners,” said Gottschalk. “It’s false to believe that OEMs are interested in weak suppliers. In addition to the best price, they want to have strong international partners.”

Car manufacturer Jaguar Land Rover has long valued fair cooperation with suppliers, emphasized Adrian Mardell, Deputy CFO and Operations Controller at Jaguar Land Rover. The fact that his company was voted the most popular OEM testifies to this. Integrating suppliers early on was also mentioned as a decisive factor. After its relaunch in 2008, Jaguar Land Rover also reorganized its cost management. Among other things, the company has increased the number of cost controllers to around one hundred. “It’s not enough to demand transparency from your suppliers alone,” explained Mardell. “You must also have a complete overview of your costs in your own company.”

According to Mardell, the company used to view cost data separately, such as those from pre-production and production. They simply did not have an IT tool that could bring together the different sets of data. “It’s dangerous when you have departments doing costing in isolation. The positive development we’ve experienced in recent years shows that viewing cost management as an overall task is the right approach.” IT systems are available to support these efforts – however, companies must not only be willing to use these, but also change their fundamental attitudes and find innovative approaches to cost management.

Mardell’s opinion on transparency and teamwork in companies was also shared by Dr. Oliver Weiß, Head of Finance, Controlling & IT at Bosch Mahle Turbo Systems. His presentation showed practical examples of how his company keeps costs under control in a period of massive growth. “Growing quickly and uncontrollably can jeopardize sustainable success,” warned Weiß. “If you open up a new location in China for example, you need to get the new colleagues involved from the outset. This also means introducing a common understanding of costs and uniform standards.” Establishing efficient cost management that serves the interests of the group in the shortest amount of time requires a great deal of dedication from employees, but also understanding, for example, when templates are constantly improved and replaced as a result. “The team must be willing to change the way they think. Experience has shown that employees are motivated by greater transparency and results that they can see.”

These are common guidelines in the mechanical engineering and automotive industry, confirmed Jens Delventhal, Head of Production Material, Corporate Purchasing, at Körber AG. He pointed out, however, that the HR requirements in a typical Körber company are different from those of the previous speakers: For example, they currently have very few employees available for purchasing. They are responsible for multiple functions including cost controlling. “In mechanical engineering you have to be pragmatic,” said Delventhal. “We need to offer intelligent solutions to utilize our scarce resources in the most effective way.” In purchasing controlling, less is more. Ultimately, there must be a good balance between costs and benefits: Purchasing controlling must be bold in specifying what needs to be measured and which key performance indicators (KPIs) the company can do without. Otherwise a situation could occur in which superfluous KPIs are examined that are not relevant to any current customers.

Andreas Müller, CFO and Member of Division Management at Georg Fischer Automotive, added that the problem is not just deciding what to measure and how often, it is also a question of how and why you use the data. A lot of data is collected at Georg Fischer, but they massively aggregate it: “Our management dossier has ten KPIs,” explained Müller. “We focus very strongly on driver-based monitoring. This means we don’t just look at the individual key performance indicators. We also look at the things that will influence our business and this KPI in the future.“

Flexibility and innovation are the keys to success. For a foundry company like Georg Fischer, this applies in particular to products that need to become lighter and lighter. These principles should also be applied in cost management. Foundries are characterized by their rigid production structures and immobility. “Opening up a plant in a new location is at least not on our agenda. This would require an investment of roughly €150 million,” explained Müller. “So we need to keep looking for strategic options, and this only works if we are able to quickly identify alternatives and potential savings.”

Rainer Sauerwald, Vice President Finance Transformation at NTT DATA Deutschland, also called for healthy pragmatism with regard to the requirements in cost controlling. Companies often place unrealistic demands on their product cost controlling, or ones that will hardly get them the results they are looking for. He explained how the consulting firm NTT DATA starts by giving their clients a standardized questionnaire to get a realistic picture of what their current and target situation looks like.

To grow profitably today, most companies need to manage an extraordinary complexity of costs. In the automotive industry for example, customizations and the variety of variants and parts create a flood of data that needs to be managed while always keeping a clear overview. Without IT support, this is an inconceivable task. Therefore, every company must define the right tools for their business and pursue innovative solutions in cost management.

Together with cooperation partner TMG Consultants, Martin Voigt, Director PreSales & Business Development at FACTON GmbH, presented the results of the joint market study “Cost Estimation Offer – The Challenge”. The study documented current methods and tools as well as how producing companies organize cost estimation offers, comparing these with current market requirements and trends.

Alexander M. Swoboda, CEO of FACTON, concluded the day with a positive summary of the event: “Our participants made it clear that cost management should not just be considered a necessity, but an opportunity.” At the end of the day, it could even be said: “Transparent cost management is the mother of growth.”

The FACTON Congress is one of the leading events for executives from controlling, purchasing, production and development in key sectors including the automotive, aerospace, mechanical engineering and electronics industries. It examines modern cost management from a variety of perspectives and shows how future-oriented enterprises take a proactive approach to the current challenges.